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Home Loans

Home Loan vs Loan Against Property – Which Is a Better Option?

by Marco Barrett
May 7, 2025
in Loans
0

With property rates skyrocketing across the country, many individuals explore the option of a home loan to buy their dream house. While “home loan” is quite a familiar term, many people are often confused about “loan against property.” Many home buyers use the words “home loan” and “loan against property” interchangeably; however, these terms are completely different and serve different purposes. Here, we will try to understand the difference between a home loan and a loan against property and analyze under what circumstances you should avail of these loans.

Content Summary show
Home Loan
Let’s check out some of the major benefits of availing of a home loan:
Loan Against Property (LAP)
Some of the benefits of a loan against property are:

Home Loan

A home loan is a high-value loan from banks or financial institutions at a certain interest rate to purchase your desired property. You should repay the home loan in Equal Monthly Instalments (EMIs) within the fixed duration. Since a home loan is secured, the purchased property acts as collateral. If you default on the home loan, the lender has all the rights to seize the property to recover the loss. Therefore, you must evaluate your repayment capacity before applying for a home loan. Also, you are more likely to get a home loan at an attractive interest rate if you have a high credit score. Hence, it would help improve your credit score before obtaining a home loan in India.

Home Loan vs Loan Against Property - Which Is a Better Option? 1

Let’s check out some of the major benefits of availing of a home loan:

It helps you own your dream house and saves you from paying high rent.

It has a long repayment tenure. You can opt for a repayment tenure of up to 20 years that allows you to repay the home loan easily without putting a strain on your finances.

Under Section 80C of the Income Tax Act, 1961, you can claim a deduction of up to Rs 1.5 lakh in a financial year. Whereas, under Section 24B of the Act, you can claim a deduction of up to Rs 2 lakh on the interest portion of the home loan.

You can easily obtain a home loan online with leading banks and financial institutions. Other benefits of providing a home loan in India include no prepayment charges, allowance of balance transfer facilities, attractive interest rates, and low processing fees.

Now that you know about home loans and their benefits, it is time to learn about loans against property.

Loan Against Property (LAP)

A Loan Against Property (LAP) is a type of loan that allows the borrowers to avail a large sum by pledging their house or property as a security with the financial institution. The money obtained through a loan against property can be used for various purposes, such as funding a kid’s education, managing wedding expenses, setting up a business, etc. Since a loan against property is secured, numerous banks and financial institutions are willing to offer this type of loan. Thus, if you require a large amount of money to cover some financial needs, you can opt for a loan against property.

Some of the benefits of a loan against property are:

  • You can avail of a high loan amount. The loan amount is usually 60-70% of the property’s market value being mortgaged.
  • Since it is a secured loan, the interest rate is comparatively lower than unsecured loans.
  • Loan against property often comes for a longer tenure and, therefore, has lower monthly installments (EMI)
  • It is a multipurpose loan and can also be a great tool for debt consolidation.

The key difference between a home loan and a loan against property is that the former helps you finance the purchase of a property or house. In contrast, the latter allows you to raise a large sum by pledging your parcel as a security with the lender. You can opt for any of these loan products depending on your financial needs. Always opt for a reputed lender with good customer service to avoid any inconvenience later. Lastly, ensure that you do thorough research before availing of a loan.

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